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1. Do you foresee any hope for a turnaround for Samsung? If so, where do its best opportunities lie?

The smartphone business was a huge opportunity for Samsung and they took full advantage of it. Unfortunately, it’s a difficult business to stay on top of. The list of victims in that industry is quite long and there have been no long-term winners. Samsung’s operating model seems to be to invest as a ‘fast follower’ filling in the market after it’s established while leveraging capital intensive components synergies. That has also worked for them in consumer electronics (at the expense of Sony and other Japanese vendors). If the modus operandi does not change then their turnaround will depend on the creation of new opportunities/categories. Wearables may be such an opportunity but it may not be as big as the phone business.[1]

2. What has contributed most to Samsung’s decline? Which competitors are posing the greatest threat?

Notes:

The graph shows estimates of smartphone shipments for a select number of vendors. [↩]

Horace and Anders on the irrelevance of shareholders. Anticipating an Apple October 2014 event they discuss how the iPad and tablet designs could evolve. Diving into how brands can manage disruption through a whirlwind tour of products from cameras to watches to cars.

Horace and Anders analyze the possible business models for Apple Watch, how it may be introduced, distributed, sold, and bought. What impact will the Watch have on Apple’s top and bottom lines? They further look into possible introductions for the rest of 2014. Horace sounds about to give up hopes on Apple TV.

Samsung Electronics warned Tuesday that its third-quarter earnings would fall below market expectations. It did not cite a decrease in shipments but an increase in marketing expenses coupled with an unfavorable mix (i.e. more low-end units and fewer high-end units).

The headlines reporting the news emphasized the 60% forecast drop in operating income but the company also provided sales figures. Adjusting for exchange rates, the forecast revenues are shown in the following diagram:

Note that I also included Apple’s revenue history and forecast. Samsung’s revenues are shown on the right and Apple’s on the left using the same scale (each horizontal gridline represents $10 billion/quarter.

The explicit cause for the drop is a decline in prices and “increased competition”.[1] However a few more questions need to be answered regarding long-term success in the markets Samsung competes in.

Namely:

The absence of a software platform fully within its control

The absence of control over an ecosystem of content and apps

The absence of services

The lack of integration of software, services and hardware

The absence of differentiation vis-a-vis other vendors

The indefensibility of its low end offerings from low end disruptors

The pattern of commoditization in all its markets

Samsung is a very big company but many very big companies came to become small companies. They all followed similar roads.

Notes:

Though one can’t be sure when there was ever decreased competition in its markets. [↩]

Horace and Anders discuss Opening Weekend Sales of iPhone 6, Accurate Timekeeping Device, the 3rd tentpole of Apple Watch, leading to a brief history of wristwatches, a study of Job-to-be-done for the watch and what it signals about Apple’s future.

Horace also announces his new role at the Clay Christensen Institute, and the resumption of Airshow World Tour starting with Airshow Seattle on Nov 8.